From his McLean home a mile south of the Potomac River, Del. Vincent F. Callahan Jr. can gaze north to the treetops of Maryland, where lawmakers have peculiar ideas for their state budget surplus of nearly $1 billion, less than half the new cash that he and other legislators are settling down to spend, Virginia style.

The Free State "might as well be a foreign country," said Callahan, the Old Dominion's most senior Republican legislator and chairman of the General Assembly's powerful Appropriations Committee. "They do things in different ways."

Separated by much more than an ancient river valley, the two legislatures convening their annual winter sessions this week will make strikingly different choices about their residents' pocketbooks, according to assembly leaders and the governors in Annapolis and Richmond.

Led by Gov. James S. Gilmore III, a newly empowered GOP majority in the Virginia assembly is poised to approve 16 separate tax cuts for almost $1.6 billion in annual breaks. In sharp contrast, Maryland's Democratic-controlled State House and two-term Gov. Parris N. Glendening (D) are determined to grant no sweeping new relief, preferring only a modest repeal of inheritance taxes.

Both states are replete with bulging treasuries made possible by an explosive economy, and they do have some shared goals, such as building schools and roads, controlling health care costs and enhancing public universities. Similarly, the Maryland and Virginia spending plans will have their traditional helpings of the sometimes costly public works projects that legislators and statewide officials love to send back home.

Many of the three dozen states that begin their legislative sessions this month are awash in budget surpluses. In recent years, the state surpluses nationwide have totaled about $30 billion annually.

Many states are entering their sixth straight year of tax cuts. The net reduction this year may amount to more than $6 billion nationwide.

The states also have become laboratories for new programs, as the states' varying purses and the political climates allow. And as the good economy of the 1990s continues into 2000, the state legislatures are more likely than Congress to produce the nation's new tax-cutting or spending initiatives. The Maryland and Virginia general assemblies illustrate the contrasting philosophies on how to spend the states' bounty.

"States are in good fiscal shape," said Stacey R. Mazer, a senior staff analyst at the National Association of State Budget Officers, "so they weigh their choices: investment, infrastructure, one-time tax cuts, other tax cuts, education.

"Tax cuts still seem to be popular," Mazer said, though she noted that while states continued to reduce taxes, last year's reduction was less than the $7 billion in cuts enacted the previous year. In some cases, states that embarked on tax cut programs in 1995 decided to change gears and send that money to highways, schools and other infrastructure programs.

Geographically more compact than its southern cousin, with a stronger urban-suburban tradition, Maryland has a longer history of large public works such as professional sports stadiums, affordable housing, mass transit and other projects often paid for by public debt such as bonds.

Virginia, on the other hand, has more than four times the land area of Maryland. It also has a large, conservative rural presence to counterbalance the governmental activism of the Northern Virginia suburbs. Historically, those and other factors have left the commonwealth less willing to issue debt to pay for projects.

"There is an expectation in Maryland for a certain level of services," said Frederick W. Puddester, a 20-year veteran of state government who has advised governors through the 1990 recession and today's rosier times.

"There's an expectation that government has a role in this state, a positive role," Puddester said.

Gilmore, elected two years ago on a politically popular pledge to abolish the annual levy on cars and trucks, said his mission has been nothing less than to bury forever New Deal thinking about government's activist role.

Taxes, in Gilmore's view, are at best a necessary evil: "You can't stop all taxation," he said in an interview. "You can't stop doing what government ought to do, but if you have the opportunity to cut taxes and enrich the lives of working men and women, you should do it."

Traverse the Potomac for a decidedly different view.

"I have not had a single person come up to me and talk about further cutting taxes," Glendening said in an interview.

"I have had hundreds of people come and talk particularly about building and modernizing schools," the governor added. "I've had people come up and talk about transportation problems. I've had people talk about buying open space. I've had people talk about mass transit. I've had people concerned about children not having health insurance.

"We have a really unique opportunity to really invest in the future."

Senate President Thomas V. Mike Miller Jr. (D), whose Prince George's County district sits across the river within view of Virginia, echoed Glendening, observing about his neighbors, "They have many more conservative Republicans, people who believe government should play a smaller role in our lives.

"I get to certain areas of Baltimore County, and they want me to raise their taxes," Miller said. "They say the gas tax should pay for transportation.

"It's very European," Miller added. "It's a very progressive view."

In Maryland's distinctive culture, Glendening, who has cut 20 taxes since taking office in 1994, championed a tobacco tax increase last year, a move he said would discourage teen smoking. Since then, other Democratic leaders have clamored for an increase in the gas tax to pay for transportation needs.

Only after new revenue estimates showed Maryland overflowing in cash--and after Miller and other legislative leaders vowed to oppose a higher gas tax--did Glendening announce he would seek no gas tax increase before he leaves office in 2002. Maryland's operating budget is about $9 billion.

Glendening also is opposing efforts by Miller and some other lawmakers to accelerate a 10 percent income tax cut, which is scheduled to be phased in by 2002. But no one is talking about deeper cuts in the income tax.

In September, Glendening unveiled $1 billion in new transportation projects, including extensions of Metro to new roadways. He later proposed spending a record $1.2 billion on construction at Maryland's college campuses.

Glendening's proposed outlays come on top of his plan to pour $250 million into school construction again this year, as he spends his way toward his goal of $1 billion for new and renovated classrooms before he leaves office.

The centerpiece of Gilmore's $48 billion, two-year budget is car-tax relief, which is expected to soak up about $1 billion a year in state revenue. Legislators also will be asked to approve 15 other tax breaks, including $10 million in tax credits for companies that help their employees work from home. The state also plans to continue phasing in its 2 percentage point reduction in the food tax and to cut taxes for military families.

Gilmore projects that the General Assembly will have at least $2.4 billion in new general fund money to allocate over the next two years as a result of surpluses and projected increases in revenue. There are two principal engines for the new revenue--individual income taxes and state sales tax receipts, with the Washington suburbs once again proving to be the bedrock of the state's economy.

With all that new money at their disposal, Gilmore wants lawmakers to increase funding for Virginia's 17 state colleges by about 10 percent--$108 million, with $15 million specifically for George Mason University, a high-tech magnet in the region. His budget also would spend more for aid to public school systems, care of the elderly, services for the mentally ill and improvement of tourist facilities.

On transportation, Gilmore is proposing spending $2.5 billion over six years by accelerating federal funds for 90 urgent road projects and dipping into the state's general fund if necessary, a novel idea that almost certainly will be reworked by a legislature jealous about its control of such spending.

While the Gilmore program would represent a major increase in transportation spending, many transportation advocates said it would not come close to meeting the state's needs.

Some experts believe that even in an era of surpluses, neither state will rush to develop long-term funding for regional programs such as major transit improvements. Virginia's Callahan said he is filing legislation to create a bi-state task force on transportation issues to get lawmakers from the region talking about shared problems.

"Legislators in Maryland and Virginia are talking about how to use budget surpluses," said Michael C. Rogers, executive director of the Metropolitan Washington Council of Governments.

"The question is, will transportation be on the table?" Rogers said. "There's not enough money now to fill the needs.

"In the end, states operate in their own self-interest."